Lloyd Inc. has sales of $400,000, a net income of $32,000, and the following balance sheet:
Cash | $86,400 | Accounts payable | $97,200 | |
Receivables | 146,880 | Notes payable to bank | 37,800 | |
Inventories | 421,200 | Total current liabilities | $135,000 | |
Total current assets | $654,480 | Long-term debt | 214,920 | |
Net fixed assets | 425,520 | Common equity | 730,080 | |
Total assets | $1,080,000 | Total liabilities and equity | $1,080,000 |
The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 1.75x, without affecting sales or net income.
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